Hong Kong Discusses US Termination Of Shipping Tax Pact

by Mary Swire,, Hong Kong

25 August 2021

The Hong Kong Government has said it is looking at potential measures to support the shipping industry following the decision by the US Government to terminate the two territories’ agreement that exempted shipping industry income from tax.

US authorities announced in October 2020 that starting from January 1, 2021, they would terminate the agreement with Hong Kong on Income from International Operation of Ships. Following the termination of the Agreement, both the Governments of US and Hong Kong have ceased to grant tax exemption to the income derived from international operation of ships by shipping companies of the other side.

The Hong Kong Government was asked to respond to concerns from members of the shipping industry about the impacts of the termination of the Agreement on Hong Kong’s shipping industry.

In response to a number of questions posed to the Government, the Secretary for Transport and Housing, Frank Chan Fan, said in the Legislative Council on August 18:

“The Government fully understands the adverse impact brought by the US’ termination of the Agreement on the local shipping industry. We have been in close discussion with the trade to work out the mitigation measures, and are seeking legal advice on this matter.”

Chan Fan provided some information on how trade volumes have changed but said it is difficult to estimate how much the termination of the agreement may have cost the industry. He said the Government is seeking to expand Hong Kong’s comprehensive avoidance of double taxation agreement network, to open up more opportunities for Hong Kong businesses.

He said: “The current-term Government has since July 2017 signed CDTAs with eight jurisdictions, bringing the total number of CDTAs to 45, of which six CDTA partners are member states of the Association of Southeast Asian Nations. Besides, the Government has concluded double taxation relief agreements in respect of shipping/shipping and airline income with five other jurisdictions ([namely, with] Denmark, Germany, Norway, Singapore and Sri Lanka), and confirmed reciprocal tax exemption arrangement on shipping income with Chile.”

He concluded: “The Government is currently in negotiations with 13 jurisdictions. We will strive to conclude the negotiations and sign the CDTAs as soon as possible, and will continue to proactively identify negotiation partners.”

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